Improve your trading success rate, start by learning these technical indicators

Knowing is not difficult; acting is not easy. For secondary market investments, everyone knows they should not be greedy, nor chase highs and sell lows, but how many people can truly control their hands to achieve the unity of knowledge and action? In the Tao Te Ching, Laozi mentions the Dao, Fa, and Shu. Dao refers to rules, natural laws, and core philosophies; Fa refers to methods, principles, and systems; Shu refers to behaviors and operational techniques. The combination of Dao, Fa, and Shu is regarded as an important principle and guideline for guiding people’s lives and social development.

For the secondary market, we can also divide investments into Dao, Fa, and Shu, and all three are indispensable.

Dao: Represents investment philosophy and beliefs, including the direction, goals, and values of investment. This includes analysis of long-term market trends, macroeconomic conditions, and fundamentals.

Fa: Represents investment rules and regulations, including strategies, risk management, and asset allocation.

Shu: Represents technical analysis, quantitative analysis, and trading psychology.

Today’s report will focus on “Shu” in trading, aiming to share the application of technical indicators and technical analysis in practice. For most people, there is no need to learn many obscure technical indicators, as they are lagging and cannot directly generate profits. This report will share commonly used technical indicator methods to help more people understand the significance of technical analysis.

Disclaimer: The currencies and indicators mentioned in this report do not constitute investment advice; they are for educational purposes only. The investment suggestions and indicator usages mentioned are not suitable for all currencies and products. Blockchain carries high risks, and you may lose all your principal. Please conduct thorough research.

The article mainly includes:

1. Explanation and application of MA and MACD indicators

2. Explanation and application of Bollinger Bands (BOLL) and RSI indicators

3. Variations of flag pattern consolidations

4. Summary

5. Explanation and Application of MA and MACD Indicators

MA, also known as Moving Average, calculates the average price over a specified number of periods. For example, MA5 represents the average price over 5 candles, including the current one, whether on minute, hourly, or daily charts. The smaller the MA number, the more sensitive it is to short-term fluctuations, focusing on short-term movements. Conversely, larger MA numbers indicate slower response, emphasizing long-term trends.

The MA number can be set according to user preference. Here, I share two commonly used MA trading methods: Vegas Channel and Bisection Channel.

Vegas Channel

Vegas Channel simplifies the use of the 144 and 169 moving averages, employing three MAs to determine medium- and long-term trends. This method is not suitable for periods below 15 minutes and is best used on hourly or longer charts.

Why use these two MAs?

Careful observation reveals that 144 and 169 are squares of 12 and 13, respectively, implicitly containing Gann’s square theory and Fibonacci sequence principles. Specifically, 144 comes from Gann’s square theory, and 169 is the square of Fibonacci number 13. Combining these two enhances practical application in trading.

Example:

Taking OP’s four-hour chart as an example, when the 144-day MA crosses above the 169-day MA, it forms a golden cross (the 144 MA crossing above the 169 MA), indicating a medium- to long-term bullish trend, suggesting a potential entry point. When the price peaks and the 144 MA crosses below the 169 MA, forming a death cross, it signals a medium- to long-term exit or caution.

Some may ask: isn’t this too absolute? How to interpret the frequent golden and death crosses during sideways movement? Isn’t that just gambling?

My advice is that since the 144 and 169 MAs are lagging and cannot determine short-term trends, adding 7 and 14-day MAs as auxiliary indicators can help judge short-term movements. By analyzing the larger timeframe trend with high-level MAs and confirming with smaller timeframe golden crosses, the certainty of signals can be maximized.

Vegas Channel is used to identify medium- and long-term trends. Due to its lagging nature, it should be combined with short-term MAs for validation. A strong trend requires the 144 and 169 MAs to be rising. If the price consolidates around these MAs, it indicates weak short-term momentum, not suitable for entry. The 144 and 169 MAs also serve as support and resistance, suitable for ultra-short-term rebounds and oversold operations.

Bisection Channel

The Bisection Channel is inspired by the mathematical Squeeze Theorem: if a function is “sandwiched” between two others with the same limit at a point, then it shares that limit.

In the secondary market, a similar model can be simplified into two MAs, 111 and 350, recommended for short-term trading due to the longer period of the 350 MA.

Why these two?

Dividing 350 by 111 yields a number close to Pi (~3.14), specifically 3.15, or by dividing 350 by 3.14, which gives approximately 111.

Example:

Using TRB’s hourly chart, when the blue line (350 MA) is above and the yellow line (111 MA) is below, forming a shape similar to a triangle, it indicates a successful “sandwich.” Post-formation, the trend is bullish, but note that a proper “sandwich” requires the 111 MA to cross above the 350 MA; if only one crosses, the pattern is invalid.

This channel applies to 1-hour and 4-hour charts, with moderate accuracy. Once successful, it indicates a significant future trend. When a sandwich pattern appears, increased attention is warranted, and other technical indicators can be used for confirmation.

MACD (Moving Average Convergence Divergence)

MACD is one of the most commonly used technical indicators, analyzing the momentum of price changes by comparing different period moving averages to generate buy and sell signals. It consists of the zero line, MACD line, and signal line, with focus on their interactions.

Three MACD signals:

1. Cross of MACD line and signal line:

• Buy signal: When MACD (blue) crosses above the signal line (yellow) from below, indicating increasing bullish momentum, consider entering long.

• Sell signal: When MACD crosses below the signal line from above, indicating decreasing momentum, consider selling.

2. Relationship between MACD and zero line:

• Above zero: MACD is positive, indicating short-term average above long-term, bullish trend.

• Below zero: MACD is negative, indicating bearish trend.

3. Histogram changes:

• Negative to positive: Histogram shifts from below to above zero, indicating strengthening bullish momentum, a buy signal.

• Positive to negative: Histogram shifts from above to below zero, indicating weakening momentum, a sell signal.

Example:

Using ETH’s four-hour chart, when MACD crosses above the signal line, it indicates bullishness; crossing below indicates bearishness. MACD is applicable across all timeframes, from minutes to weekly charts.

Advanced MACD and MA Usage

Beyond basic signals, understanding how to interpret MACD and MA together is crucial. Many market manipulators may create false signals, such as fake crossovers, to trap traders.

How to identify false signals?

For example, in a 15-minute chart of BB, after a new high, the price quickly drops, and MACD enters a death cross, signaling a correction. During the correction, the price may rebound close to previous highs, but MACD just begins to cross over again. This pattern indicates a “weak rebound,” where the price has already risen, but MACD signals a buy just as momentum wanes. Over 80% of such cases tend to fail shortly afterward.

Similarly, on ETH’s hourly chart, a MACD golden cross with increasing green bars suggests a strong upward move, suitable for entry. If after a correction, MACD turns bearish but the price fails to decline significantly and MACD’s strength diminishes, it indicates a divergence—called “top divergence”—a strong sell signal. Conversely, a “bottom divergence” occurs when the price makes a new low but MACD does not, signaling a potential buy.

2. Explanation and Application of BOLL and RSI Indicators

BOLL (Bollinger Bands)

Developed by John Bollinger based on standard deviation principles, BOLL is a simple yet powerful technical indicator. It consists of three lines: upper, middle, and lower bands. The upper and lower bands act as resistance and support levels.

When the price reaches the upper band, it indicates overbought conditions and potential for a pullback; when it hits the lower band, it indicates oversold and potential rebound. A move from the upper band to the middle band suggests weakening momentum, while crossing below the middle band can signal a trend reversal.

Key principles:

• Price breaking above the upper band suggests overbought; potential for correction.

• Price breaking below the lower band suggests oversold; potential for rebound.

• The middle band (usually a 20-period MA) guides trend direction.

• Narrowing bands indicate low volatility and potential breakout.

• Wide bands suggest strong momentum.

Important rules:

1. Price breaking above the upper band: watch for pullback.

2. Price breaking below the lower band: watch for rebound.

3. Strong trend stays above middle band.

4. Weak trend stays below middle band.

5. Band width narrowing signals potential volatility spike.

6. Larger opening indicates stronger trend.

7. Middle band indicates trend direction.

8. Sudden band contraction signals possible reversal.

9. Sudden expansion after consolidation indicates breakout.

10. Longer consolidation with narrowing bands suggests imminent big move.

Example:

Using BTC hourly chart, when price exceeds upper band, overbought; when drops below lower band, oversold. During tight band contraction, expect a significant move. In strong bullish phases, bands tend to expand and follow the middle MA upward; in weak phases, bands contract and trend downward.

RSI (Relative Strength Index)

RSI measures the speed and change of price movements to assess overbought or oversold conditions, ranging from 0 to 100. Typically, RSI above 70 indicates overbought, risking a correction; below 30 indicates oversold, risking a rebound.

Example:

Using BTC hourly chart, RSI dropping below 30 suggests oversold, potential for rebound, but not a buy signal alone. RSI crossing above 70 indicates overbought, potential for correction. However, in extreme cases, RSI can reach 99 or 1, so it should be used as an auxiliary indicator.

For EDU’s four-hour chart, RSI surpassing 70 and reaching 99 indicates strong overbought conditions, making simple 30/70 signals insufficient. Adjust thresholds based on the asset’s characteristics, such as small-cap or meme coins, where RSI may need to reach 90/10 for signals.

3. Variations of Flag Pattern Consolidation

Flag patterns, also called triangle consolidations, are not indicator-based but based on candlestick patterns. There are about 16 common types. Recognizing these can help identify potential entries.

Successful flag patterns often lead to upward continuation, but failures occur too. It’s advisable to buy at the low point of the pattern. When price breaks out of the triangle, the breakout point becomes support; during pullbacks, entries near support are possible.

Example:

Using APT’s 15-minute chart, the pattern resembles the third and tenth types. Note that these are successful cases; many market makers may fake such patterns. Be cautious and consider stop-losses.

Similarly, TRB’s hourly chart shows a three-week flag pattern, resulting in a threefold increase in a week. Recognizing such patterns can help in future trades.

4. Summary

As the saying goes, in trading, Dao, Fa, and Shu are all essential. This report focuses solely on “Shu”—techniques. Merely mastering technical indicators is not enough; the market is full of traps, and every three months, trends, pump methods, and decline techniques evolve. Continuous observation and learning are necessary.

Humans are alive; indicators are dead. Technical indicators are tools to assist judgment after thorough understanding and risk management, not direct profit sources. All indicators are lagging and cannot guarantee 100% accuracy. Only with sufficient knowledge and risk control can they aid investment; otherwise, it’s gambling.

Furthermore, all technical indicators are more complex than presented here. Each has variations and methodologies that can be studied for years. This article does not cover all variations. Personal trading styles differ, and indicator usage should be adjusted gradually according to individual preferences.